Is homeownership still worth it? Expert weighs in after sobering figures show households spend half their incomes on their mortgage

An expert says buying a house is still a good investment even after new figures revealed Kiwis spend half their incomes on their mortgage payments. 

The CoreLogic Housing Affordability report, which was released on Tuesday, showed on average New Zealand households spent 49 percent of their income on their mortgage in the past quarter. 

While it's always cost more to pay a mortgage than to rent, just 10 years ago the difference was less stark. 

In 2013 households spent on average 20 percent of their income on rent compared with 31 percent for a mortgage. 

In 2018, the difference was 21 percent for rent and 38 percent for a mortgage. That gap is now much bigger with households spending 22 percent of their income on rent compared to a whopping 49 percent on their mortgage. 

CoreLogic NZ Chief Property Economist Kelvin Davidson told the Project that rate is unlikely to change any time soon. 

"I think we've probably reached a plateau in some ways for mortgage payments as a share of incomes because it does look like house prices have reached the floor now. So if house prices flatten off and start to increase a little bit. It's hard to see housing affordability getting much better," Davidson said. 

So is it still worth buying a house if you have to spend half your income on your mortgage? 

Financial advisor and founder of EnableMe Hannah McQueen told the Project property is still a good investment, but not necessarily to live in. 

"What property allows you to do is borrow money from the bank and you buy this asset that you wouldn't normally be able to afford with your own cash. Then you get capital growth on that asset. That leveraged asset growth normally is two to three times larger than if you invested in a non-property or an unleveraged asset," McQueen said. 

"So property still performs better than other asset classes if you're able to use leverage and for many of us, we need to use leverage to try and close out our retirement savings gap. There's still a lot of money to be made with owning property, it's just whether you should be living in the property you own, that is less certain now because of other extenuating circumstances."

But McQueen said this isn't the case everywhere. For example, in Europe renting and investing in other areas is more common than in Aotearoa. 

"We have this love affair with property here. In Europe, for example, it's not as common to own your own home. It's more common to rent and to put your investments towards something else.

"I think we're opening up a different path for people who are coming onto the property market to give them more options around how they should own their first property."

But for now, buying is still the way to go because renting in your retirement is going to cost a lot more, she said. 

"The problem [with renting forever] is you're going to be paying rent in retirement. Even if you're paying $500 a week, you're going to need an extra $600,000 of retirement savings to fund the fact that you still have this ongoing cost that a homeowner, who has paid off their mortgage, wouldn't have. 

"I think the key is that renting is a cheaper way to live than owning your own home, but you have to accompany that with the right wealth strategy. And that strategy is most likely going to include still owning a property but more as an investment rather than a home."

Watch the full video above.